Hunton Employment & Labor Perspectives

In a short and simple opinion by Judge Morton Greenberg, the U.S Court of Appeals for the Third Circuit affirmed summary judgment in favor of Johnson & Johnson against pharmaceutical sales representative Patti Lee Smith, finding that the FLSA’s administrative employee exemption applied to her.  The Third Circuit is the first court of appeals to examine the FLSA exempt status of pharmaceutical sales representatives.  The ruling in favor of the employer represents a significant development for pharmaceutical companies around the country, many of whom are facing similar FLSA lawsuits brought by their pharmaceutical sales representatives.

In affirming summary judgment for Johnson & Johnson, the Court relied heavily on the deposition testimony of the plaintiff that she worked unsupervised 95% of the time, that it was up to her to run her territory as she wished and that she was the expert on her own territory for the development of a strategic plan for higher sales.  Her attorney tried to disavow all such testimony at oral argument as “mere puffery.”

As the court observed, certain facts weighed against the finding of exempt status, including the fact that plaintiff worked from a list of “target doctors” the company provided.  She also  was expected to complete an average of ten visits per day and to  visit every doctor on her target list at least once a quarter.  She was directed to “extol the benefit of the pharmaceutical drug she promoted using materials pre-approved by the company and she was prohibited from using other materials that were not approved.”

Nevertheless, the Third Circuit relied on Smith’s deposition testimony to find that her primary duty in this “non manual position” required her to form a strategic plan to maximize sales, and a description of her duties that demonstrated  a “high level of planning and foresight.”   Her testimony also supported a finding that she engaged in the development of a strategic plan” that guided the execution of her remaining duties.  29 CFR § 541.203(e).  Based on that testimony, the court found she was an exempt administrative employee. Turning to the question of plaintiff’s “exercise of discretion and independent judgment with respect to matters of significance,” the next element of the administrative exemption, the court found that her testimony showed she executed “nearly all of her duties without direct oversight.”  She developed her own schedule, was free to apply the budget for expenses the company gave her at her discretion and was “the expert” on her territory.

The court declined to address Johnson & Johnson’s cross-appeal of the district court’s holding that the FLSA’s  outside sales exemption was not applicable to pharmaceutical sales representatives.  As the court observed, that issue is pending in the Second and Ninth Circuits in cases involving Novartis, AstraZeneca, and Orth-McNeil, among others. In some of those cases, the lower courts found the outside sales exemption applied, while in others, the district courts found the exemption did not apply.  The Ninth Circuit appeals also involve the scope of the outside sales exemption under California’s wage and hour statute.

In addition to the significance that the Third Circuit’s decision has for pharmaceutical companies currently facing FLSA lawsuits, the court’s central reliance on the deposition testimony of this plaintiff provides an important subtext for this decision.  The court disapproved of the plaintiff’s counsel’s attempt to disavow her testimony as puffery.  The court cited to the “sham affidavit” doctrine under which a court will not consider an affidavit of a deponent who tries to change testimony previously given in a deposition by submitting a “clarifying” affidavit or declaration.  While the plaintiff had not submitted such an actual affidavit, the Third Circuit applied the principle behind that doctrine and refused to allow plaintiff to retreat from  testimony of  which she surely “understood the significance” in the context of her case.